Over $28 billion has been wiped from the value of Australian shares, which slumped to a nine-month low, as analysts warned the simmering Greece sovereign debt crisis threatened to boil over into a “Lehman moment” that could spark another global financial crisis.
The S&P-ASX 200 fell 87.6 points or 1.92 per cent to 4479.2, holding marginally above the March 17 intra-day low of 4477 points reached after the Japanese earthquake and tsunami, with miners leading the wholesale selloff.
The broader All Ordinaries index lost 88.7 points, or 1.91 per cent, to 4,546.7, its lowest close since September 1.
Markets tumbled as European officials again failed to hammer out a deal that would not trigger a technical default on Greek government debt which would have widespread ramifications for European banks, the major holders of Greek debt.
Overnight rating agency Moody’s placed three French banks, BNP Paribas, Societe Generale and Credit Agricole, on review for a downgrade because of their exposure to Greek government bonds and the private sector.
In 2008 the US sub-prime mortgage crisis spiralled into the GFC after US officials let US investment bank Lehman Brothers fail, triggering a liquidity crisis and loss of confidence in the banking system that sent global sharemarkets tumbling.
Overnight Wall Street slumped 1.7 per cent after a swathe of weak data compounded credit market jitters.
The Empire manufacturing index fell 7.8 points against expectations of a 12 point increase, May CPI inflation of 0.2 per cent beat forecasts of 0.1 per cent, industrial production increased just 0.1 per cent and the NAHB Housing index dropped to 13 from 16.
Japan’s Nikkei index fell 1.7 per cent and the Shanghai composite index was off 1.1 per cent at the Sydney close.
The Australian dollar fell 1.9¢ to $US1.0520 as safe haven buying boosted the US dollar against most major currencies. Overnight the euro fell 2 per cent against the greenback and to a fresh record low against the Swiss franc.
Gold eased back to $US1525 an ounce in Asian trading having rallied to $US1532 in overnight trade.
CMC Markets sales trader Ben Taylor said another weight on shares was the return of volatility on Wall Street, with the VIX Index, also referred to as the fear index, rising 20 per cent in yesterday’s session.
"Our industry, miners and finance sectors seem to have taken the largest hits today for what has been a horror day on the markets," he said.
"Even the defensives proved to be losers today."
Locally, investors were continuing their sell off after comments on Wednesday from Reserve Bank of Australia governor Glenn Stevens that interest rate rises would be necessary at some point, Mr Taylor added.
"The markets are voicing the current state of play,” he said.
"Consumer confidence is sitting at two-year lows, full time employment is falling and home prices are hinting at continued falls.
"This does not seem like an inflationary environment where interest rates need to rise as the RBA governor suggests."
The heavyweight materials sector was one of the worst performers, down 2.31 per cent.
BHP Billiton lost 89 cents, or 2.08 per cent, to $42.00 and Rio Tinto dropped $1.68, or 2.1 per cent, to $78.40.
The big four banks were also hit.
Mr Taylor said the sector had been hit by short selling, but investors were also selling due to increasing mortgage arrears and falling house prices.
NAB lost 39 cents to $24.26, ANZ dropped 47 cents to $21.35, Westpac shed 64 cents to $21.10 and Commonwealth Bank ended $1.06 lower at $49.26.
CBA contradicted reports it was or had ever been interested in buying Insurance Australia Group.
Even defensive stocks lost ground amid the sell-off, with Telstra losing one cent to $3.04 and Woolworths shed 20 cents to $26.70.
Making news, Linc Energy continued its push into North America by buying a $US50 million ($A47.54 million) controlling stake in an Alaskan oil field.
Its shares lost 10 cents, or 3.23 per cent, to $3.
Preliminary national turnover was 2.96 billion securities worth $8.12 billion, with 236 stocks up, 943 down and 369 unchanged
On the ASX 24, the September share price index futures contract was 97 points lower at 4458, with 47,821 contracts traded.
Replies
Very interesting, thanks for posting this. In Canada we are dealing with fall out from our US neighbors whose economy is fracturing. There's a new movement here against Canadians following USA policies, in another five years they are going to own Canada with nothing more than a handshake and some really bad trade deals. Our PM basically sold Canada to the lowest bidder... And Canada has the oilsands so we're next on the hit list by the behemoth down south.
Save us Jeebus!